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…and banks set to oblige

india Updated: Oct 26, 2008 20:29 IST
Mahua Venkatesh

Leading public sector banks have decided in favour of cutting deposit rates before taking any call on the benchmark prime lending rates (BPLR). Banking sources said that deposit rates could well be reduced by 50-100 basis points — that is 0.5 to 1.0 percentage points.

Bankers told HT that they will cut the BPLR along with home loan rates only after a reduction in deposit rates. Banks have already indicated that the focus will be on replacing high-cost deposits with low-cost ones. That means fixed deposit rates may go lower.

Several public sector banks, including the State Bank of India group, had raised bulk deposits at rates as high as 10 per cent during the March-April period in a bid to meet the targets projected by them to the Finance Ministry.

“Banks cannot afford to keep the deposit rates unchanged while reducing the PLR. It has to be done in sync and only after studying the asset liability situation carefully,” said a senior official at a public sector bank. While the BPLR is at around 14 per cent the floating home loan rates charged by public sector banks are now between 11.75 and 12 per cent.

Bankers admitted that the liquidity situation has improved significantly and is sufficient to take care of the growth in credit demand. A decision on the reduction of interest rate will be taken in the next one month, they added.

The Reserve Bank has lowered its signal repurchase (short-term lending) for banks to seek a cut in lending rates, but banks are in no hurry to oblige because it costs them a lot to raise the funds.

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